Dynamic Duo of Terra: LUNA and UST

Started by RafaelJames, Jul 20, 2022, 01:20 AM

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RafaelJamesTopic starter

Cryptocurrency LUNA and stable coin UST are essential ingredients in the Terra blockchain project's plan to serve as a foundation for a global payment system. With Anchor and Mirror protocols, Terra operates as a decentralized bank, providing customers with greater returns and lower fees. The future Columbus-5 update promises greater efficiency and scarcity for LUNA.

In recent years, the Defi industry has boomed by supplanting conventional banks and intermediaries, which has increased opportunities for profit among users. Stable coins, which are tied 1:1 to an asset such as USD, are often used as a part of DeFi. However, most large stablecoins are centralized, giving the registered entity behind the peg control over all money processes. Terra and UST are combatting this problem through rapid adoption.

The Terra blockchain was founded by Do Kwon and the Korean company Terraform Labs. Released in April 2019, the Terra blockchain's main net features the LUNA token as its native cryptocurrency. Terra is similar to smart contract blockchains like Ethereum, but it features the UST stablecoin, which distinguishes it from other projects.

UST is an algorithmic decentralized stablecoin that doesn't share a 1:1 relationship with the US dollar, as Luna cryptocurrency provides an algorithmic stabilization method. Any user can mint UST by burning LUNA, with $1 LUNA burned creating $1 UST. The reverse is also possible, as $1 UST can be burned to create $1 LUNA. This creates an inseverable link between the two cryptocurrencies, meaning LUNA's success depends on UST's adoption. The more UST minted, the more LUNA burnt, which ultimately decreases the supply and drives up prices.


The mechanism behind UST is impressive as it allows for both conversion and burning, creating a balance that produces the desired effect. It's a key feature that will be interesting to see in action as the project evolves.

Terra has started to actively promote their network after previously flying under the radar. Now, their token has gained attention due to its substantial growth, and it's being talked about everywhere.


Coins in the Terra blockchain are based on the Cosmos ecosystem, which includes other blockchain platforms like Cosmos Hub, Cronos, and Thorchain. Unlike Ethereum, where all tokens are protected by proof-of-work mining from the main Ethereum chain, the Cosmos protocol can be supported by independent miners, depending on the specific application.

Being a smart contract blockchain protocol, Terra coins can be used in any applications built on top of the protocol. For instance, the Terraform Labs mirror protocol provides stock options representing the prices of large American businesses.

In September 2021, Terra launched an update, Columbus-5, that introduced new functionality for its Inter Blockchain Communication (IBC) protocol, which makes it compatible with other blockchains. Other updates include Ozone, an insurance protocol, and UST support from the Wormhole V2 cross-blockchain bridge.

The future of the Terra protocol largely depends on the future of the stablecoins underlying it. Will centralized USD stablecoins become too entrenched in the US financial system (possibly through a central bank digital currency) such that decentralized alternatives will go out of fashion?
 Conversely, will decentralized stablecoins move away from being pegged to the US dollar and instead rely on protocol liquidity? Or will arbitrageurs lose interest in LUNA and cause stablecoin prices to plummet, sending them all to their graves?